Executive Risk Management ALCO
Chaired by Managing Director, includes Chief Operating Officer and members of Corporate Management from Finance, Treasury, Corporate and Personal Banking, International, Inspection and Risk functions.
Scope of Activities:
- Exercises the powers and authority
of the Board with respect to day-to-day management of non-credit risk including market and operational risk in accordance with the policies and directives determined by the Board.
- Manages the balance sheet, off balance sheet exposures and capital within the performance and risk parameters laid down by the Board.
- Provides directions to the Bank’s Treasury and other businesses regarding short term business strategy taking into account market variables in relation to the Bank’s exposures and the Bank’s Corporate Plan.
- Approves the liquidity and funding plans of the Bank and assesses the liquidity risks facing the Bank.
- Monitors Key Market and Operational Risk Indicators, reviews the potential impact of concentrations and various scenarios on the Bank’s business and gives directives to mitigate and manage the related risks.
- Reviews and gives directives regarding risks associated with new or significantly changed businesses, products and activities.
- Evaluates the impact of market stresses on the sustainability of the Bank’s business models, investments, growth and reputation and gives appropriate directives.
- Approves Market and Operational Risk Management policies, procedures and review mechanisms.
- Advises Managing Director on delegated limits of authority for Treasury activities and exposures.
Business and Functional Managers
Individual business and functional managers exercise powers in so far as they concern the management and day-to-day running of their business or function including the following responsibilities for risk:
- Primary responsibility for taking
risks on the Bank’s behalf within their delegated limits of authority
in accordance with the Bank’s policies, standards and guidelines subject to robust and effective review and challenge.
- Evaluating and controlling the risks in the business they and their subordinates are undertaking so that they are individually accountable for managing those risks.
- Ensuring consistent high standards for the origination, documentation, review, problem resolution and remedial action in respect of risks for which they are accountable.
- Assess and periodically report the extent of implementation of Risk Management measures within their business or function against a wide ranging list of possible risks and action taken to manage those risks.
Integrated Risk Management Department
Our Integrated Risk Management Department provides an independent control function, meaningfully impacts on all higher and exceptional risk decisions, supports the further development of our strong pervasive Risk Management culture and ensures that the Board and Management at the appropriate levels is provided with an integrated view of the risks faced by the Bank. Its responsibilities include:
- Management of Risk across the entire Bank.
- Bringing to the attention of Management, the Executive Risk Management ALCO, the Executive Credit Policy and Credit Risk Management Committee and/or the Board Integrated Risk Management Committee as appropriate any situation that is of concern from a Risk Management perspective or that would materially violate any risk appetite policies or guidelines.
- Interacting regularly with the business and functional managers so that they have sufficient access to relevant information and guidance to manage their risks.
- Reporting to Corporate Management or the Board Integrated Risk Management Committee as appropriate on material risk concentrations as they develop, highlighting material market imbalances, assessing their potential impact and coordinating the related development of the Bank’s risk strategy and appetite.
Integrated Risk Management functional Department lines are given in the diagram below:
 |
Other Departments and Units involved in various aspects of Risk Management include:
- Inspection Department which includes the bank-wide compliance function
- Central Recoveries Department
- Credit Monitoring Unit
- Anti-Money Laundering Unit
- Business Continuity Management Unit
Risk Profile Assessment
Credit Risk
Credit Risk accounts for 91.34% of the Bank’s present risk weighting under Basel II, 64.15% of our total assets consists of loans and advances, credit risk is thus the most significant risk to which Commercial Bank is exposed.
Credit Risk is the possibility of losses resulting from the failure or unwillingness of a borrower or counterparty to meet the contractual obligations to the Bank and the risk that collateral will not cover that claim. In evaluating and managing Credit Risk, we continuously review exposures and concentrations at the: customer, group, industry, geography and lending type level. Credit Risk can be created in different areas of the Bank’s operations, including the direct lending portfolio, off balance sheet exposures, funding & investment activities and trading where the counterparties have repayment obligations and other commitments.
Responsibilities for the credit are clearly segmented between:
(a) Credit origination and credit relationship management
(b) Credit operations, documentation and lending administration
(c) Credit risk management
(d) Recovery and management of problem loans
The Bank’s policy is to develop a high quality and diversified credit portfolio of Corporate, SME and Personal customers in Sri Lanka and Bangladesh. The Risk Management function closely monitors changes in economic and market conditions and guides business and functional management at all levels in their responsibilities for managing their loan portfolios, establishing a robust credit culture through prudent Credit Policies, Procedures and Credit Portfolio Development and Management Strategies. The Bank uses internal lending guidelines and procedures to ensure that all lending officers understand the Bank’s appetite for risk in accommodating counterparty requirements and facilitate evaluation and approval of individual credit transactions. These processes are continuously reviewed and updated in order to maintain an optimal balance of risk and reward in our credit portfolio.
The Bank adopts a standard method in analysing various risks involved in credit propositions considering factors such as Business Risk, Financial Risk, Management Risk, Security Risk, Structural Risk, etc., and uses these to establish an Internal Risk Rating for each counterparty. This enables us to gradually migrate to more differentiated risk-based counterparty pricing. Our policies, processes and pricing enable the Bank to maintain and develop portfolio with tolerable levels of exposure relative to capital in each of the various segments and types of credit risk and ensure that these are adequately remunerated.
As part of the Bank’s gradual progression towards establishing an Integrated Risk Management System, it commenced setting up of the Credit Risk Management Unit in 2008, fully independent from the business lines. Credit Risk Management focuses on the quality of the entire loans and advances portfolio, identifying trends and concentrations, they undertake sectoral studies based on which they improve and update our Lending Guidelines. The Credit Risk Management Unit actively monitors and controls Credit Risks initiated by different business sub-segments within the Bank, ensuring a sustainable risk culture throughout the organisation. The Credit Risk Management Unit has also taken over responsibility for evaluating and obtaining approval for country risk and bank counterparty risk exposures.
In response to deteriorating market conditions in 2008, we have carefully monitored vulnerable economic and industry sectors and slippage of credit into overdue in order to identify areas of higher than normal risks and/or weaknesses in our processes or individual skill levels where suitable corrective action has been taken.
|
